Shares in Spain's state-rescued lender Bankia plunged Thursday on the back of newspaper reports that clients had withdrawn more than one billion euros in the past week, while Greeks have also reportedly stepped up pulling funds out of their banks.

Spain's daily newspaper El Mundo reported that Bankia managers told the board the bank had lost a "similar amount" of deposits this week as the 1.16 billion euros withdrawn by clients in the first quarter of the year.

Spain's fourth-largest bank had 112 billion euros in deposits from clients at the end of the first quarter.

It shares plunged by over a quarter at one point but later recovered to show a loss of 14.08 percent for the day at 1.42 euros.

In another gloomy omen, official data confirmed that Spain sank into recession with a 0.3-percent contraction in the first quarter of 2012, matching the decline of the previous quarter.

Spain raised 2.494 billion euros in a sale of three- and four-year government bonds on Thursday, but was forced to pay higher rates in a sign of mounting concern over the country's debt position.

Meanwhile, Germany's benchmark 10-year bond saw its own rate reach a new record low of 1.420 percent as investors fled to financial safe-havens.

"As we have said all along, the biggest risk is Spain," said research director Kathleen Brooks at trading site Forex.com.

Investors remain extremely anxious that the eurozone debt crisis, which resulted in bailouts for Ireland, Greece and Portugal, could also sink Spain or Italy.

Despite boosting financial defences, markets are sceptical that the eurozone could rescue Spain, its fourth-largest economy, especially if its third-largets economy Italy also came under pressure.

"Confidence in European equities (is) quickly depleting, this time after the European Central Bank admitted it had stopped providing liquidity to some Greek banks that were under-capitalised," said analyst Craig Erlam at trading group Alpari.

"Add this to the long list of other eurozone problems and investors are finding it very difficult to justify taking on the additional risk associated with the eurozone."

In Greece, where heavy withdrawals of deposits have also been reported, a caretaker technocrat government took office on Thursday to organise the debt-plagued nation's second elections in just six weeks after an inconclusive May 6 vote jolted the eurozone.

The election left Greece in limbo, pushing the financial markets and euro down sharply, and the new poll on June 17 offers no guarantee of a viable government able to implement an EU-IMF bailout which has divided the country.

The ECB bombshell, revealed on Wednesday, has sent markets spiralling lower once again on renewed fears over Greece.

"Although Greek banks can still access funds through the Greek central bank's emergency lending facility, the situation is extremely grave in Greece and risk assets remain at risk from stray headlines from Athens or Spain," added Brooks from Forex.com.

The European Union and the International Monetary Fund, which are all that stand between Greece and a disorderly debt default and exit from the eurozone, have meanwhile warned that no new funds will be released if progress on pledged reforms and tough austerity measures falters.

Analysts also expect a degree of volatility in low trading volumes on Thursday, with many European investors away for a religious holiday. However, markets remain open.

US stocks moved lower on eurozone jitters, with the Dow Jones Industrial Average down 0.45 percent to 12,542.17 points in midday trading. The S&P 500-stock index lost 0.58 percent to 1,317.11 points, while the tech-rich Nasdaq fell 0.99 percent to 2,845.68.